Appeals court rejects hospital industry’s challenge on 340B changes

WASHINGTON — An appeals court on Tuesday rejected an attempt by hospitals to challenge the Trump administration’s changes to the controversial federal drug discount program known as 340B, sticking them with a $1.6 billion cut in federal payments.

The decision is the latest in a series of blows to hospitals trying to preserve the program, which increasingly pits them against the drug makers who must offer steep discounts on medicines under its rules. Participating hospitals get higher reimbursement for the drugs from the federal government, and use the difference to cover charity care and other costs.

Last July, the Trump administration proposed slashing its higher reimbursement for the drugs by about 27 percent — amounting to a roughly $1.6 billion cut for the industry in 2019.

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Hospitals, led by the American Hospital Association, America’s Essential Hospitals, and the Association of American Medical Colleges along with three of their individual members, lost their initial lawsuit over the cuts when a federal judge ruled they had contested the change prematurely, before any of the cuts had actually taken effect. The appellate judges, from the U.S. Court of Appeals for the District of Columbia Circuit, affirmed that decision Tuesday.

“When the plaintiffs filed this lawsuit, neither the hospital plaintiffs, nor any members of the hospital-association plaintiffs, had challenged the new reimbursement regulation in the context of a specific administrative claim for payment,” Judge Gregory G. Katsas, a Trump appointee, wrote in the opinion. “Nor could they have done so, for the new regulation had not yet become effective.”

The other judges were Obama appointees Sri Srinivasan and Patricia Millett.

In a statement, hospital groups pointed out that the decision leaves them room to file again, now that the cuts have taken effect. They said they expect to refile in district court “promptly.”

“We are deeply disappointed that the courts have once again failed to rule on the merits of our case,” the groups wrote. “We will continue our fight to reverse these unwarranted cuts and protect access for patients.”

Republicans in the White House and in Congress are increasingly looking to limit the program. Congressional committees in both the House and Senate have signaled widespread interest in limiting the program, a longtime priority for drug makers and their main lobbying group, PhRMA. And Health and Human Services Secretary Alex Azar pitched even further reductions to the drug discounts in a meeting with lawmakers last week, according to a report from Modern Healthcare.